You can apply a VIDEO as desktop background in XP with the help of VLC player.

All you have to do is the following things :
1) Open VLC and check whether Wallpaper mode is enabled
Goto Settings->preferences->video->output modules->Directx
Just select the advacned option box and you will get the following window as shown below , enable the wallpaper mode , now when you run your videos and right click on it , you will see a wallpaper option.




2) Now to remove VLC from your taskbar go to
Settings->preferences->Interface->Main Interfaces->wxWidgets and uncheck the Taskbar option.






3)Now all we have to do is loop your videos , go to
Settings->preferences->playlists and you will see the required option .